Stirring up a fuss for VAT purposes

Chocolate milkshakes have been causing a real stir thanks to the latest ruling by HM Revenue and Customs.

Francesca Hutcheson, from the tax planning team at Dyke Yaxley Chartered Accountants, in Shrewsbury, said the complexity of the current VAT system led to some unusual decisions.

         “The latest case involved Nestle, who offer a range of milkshake drink powders in chocolate, strawberry and banana flavours – and they zero-rated all three flavours for VAT purposes.

         “HMRC agreed the chocolate flavoured powder should be a zero-rated product due to its cocoa base – cocoa products are zero-rated – but they disagreed about the strawberry and banana versions.

         “They said Nestle should be charging standard-rate VAT at 20% on both, and even though Nestle argued their case at a tribunal, the company ultimately lost. They then had to pay a hefty £4 million VAT bill from HMRC.”

Francesca said as a result of the case, milkshake fans could see the price of their strawberry and banana favourites increase by 20% if Nestle decide to pass the tax costs on to their customers.

And it’s not just milkshakes that have created strange situations when it comes to VAT.

         “There have been a whole host of challenging tax decisions involving some of our favourite foods – for instance, potato crisps are taxed at the standard rate, but vegetable crisps (or crisps where the main ingredient is not potato), are zero-rated.

         “Frozen yoghurt is standard-rated, but yoghurt which is frozen but is to be eaten above freezing is zero-rated.

         “Orange juice has a standard tax rating because it’s a drink, but oranges themselves are zero-rated.

         “And Jaffa Cakes (which if they were actually cakes would have been zero-rated), are in fact chocolate biscuits so they’re standard-rated.

         “Such odd rulings may seem confusing, and if you’re unsure of the status of a product it’s vital to seek professional advice to make sure you get your VAT treatment right first time.”